Strictly speaking Umbrella Companies don't charge a "fee". If they charged a fee then it would be subject to VAT. What they do do though is pass on an administration cost in calculating the profit on your contract. This is called the umbrella company's margin.

Editor | 4 May 2009
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How a Contractor can assess if they are caught by IR35 - The key points in assessing whether you are outside the scope of IR35.

An Umbrella Company is an organisation that contractors can join to ease their tax and pay issues.

Since the introduction of IR35 most companies or recruitment agencies that employ the services of contractors have required that they are invoiced for the work performed from a limited company.

From 6th April 2009 HMRC have announced that all Umbrella Companies will be able to offer scale rate dispensations for various types of expenses.